US government bonds knocked in 2022 debut3 min read

US Treasury prices fell sharply on Monday in a bearish start to 2022 that follows the worst year for the global bond market in more than two decades. </p>

The benchmark 10-year Treasury yield exceeded 1.6 per cent for the first time since the emergence in late November of the Omicron strain of coronavirus, rising more than 0.1 percentage points. The two-year yield rose above 0.8 per cent, its highest level since March 2020.

In stocks, the S&P 500 had gained 0.1 per cent by early afternoon. The US benchmark had opened 0.6 per cent higher, helped by blowout production numbers from Tesla, only to trim the advance following a sharp decline in the price of US government debt.

The Europe-wide Stoxx 600 index closed higher by 0.5 per cent, having reached a record intraday high on light volume. Germany’s Dax and the Cac 40 in Paris both rose 0.9 per cent. Equities bourses in London, Japan and mainland China were closed for holidays.

Monday’s market moves followed the worst year for global bonds since 1999 after central banks signalled they were prepared to combat inflation pressures with interest rate rises. The withdrawal of stimulus that powered a global economic recovery has so far had a modest effect on equities, with the S&P 500 last year gaining 27 per cent and the Stoxx 600 up 22 per cent.

A survey on the US manufacturing sector, due for publication on Tuesday, along with the monthly jobs report on Friday, will provide clues on whether investors are right to be anticipating at least three Federal Reserve rate rises this year.

“With speculative spirits high, investors will need to gauge return per unit of risk as volatility reappears,” said Sean Darby, an analyst at Jefferies. “Perhaps equity investors should be more concerned that policymakers might get boxed in by trying to tame inflation with higher rates without upsetting asset markets.”

Among Monday’s biggest movers, Tesla surged as much as 10 per cent after the carmaker negotiated supply chain disruption to report forecast-beating deliveries for the fourth quarter.

Rival automakers gained in response, with Volkswagen and BMW rising more than 2 per cent in Europe. Lufthansa led the travel stocks higher after Citigroup added the airline to its “buy” list in response to optimism about the revived demand for long-haul flights.

Investors were starting the year with several risks bubbling in the background, said Karl Steiner, a strategist at Swedish bank SEB. Evergrande’s notice on Monday that it would again suspend its shares in Hong Kong injected “a bit of uncertainty”, Steiner added.

The property developer has been at the centre of a sector-wide crisis in the world’s biggest emerging markets for months. Hong Kong’s Hang Seng share index fell 0.5 per cent on Monday, with the property development sector off 1.1 per cent.

Mounting tensions between western countries and Russia have also caught investors’ attention, with US president Joe Biden warning that his country would act “decisively” should Russia invade Ukraine.

Oil prices edged higher on both sides of the Atlantic ahead of an Opec meeting on Tuesday to discuss boosting output. Brent crude, the international benchmark, ticked up 1.5 per cent at $78.96 a barrel following reports that Libya’s production had been choked off by a damaged pipeline.

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